by Zain Jaffer
As an entrepreneur and investor who has had many varied life experiences, one piece of advice I can probably give right now is to be prepared for anything and everything. Sure there are highly likely and unlikely outcomes based on statistical data, but sometimes when things have changed, the unlikely may become likely.
It is not bad to use historical data to chart our future course. As creatures of habit, we humans tend to look at what has worked well in the past and repeat those. For example, investors are often told that a 60-40 stocks and bond allocation works well in general to protect your portfolio from the ravages of inflation and other factors.
If you are working for a big company that makes a lot of money, all you probably need to do is to do your job exceedingly well to get promoted and get a bigger salary. But if you are an entrepreneur, it is not just your technical skill and mastery that counts. Aside from making sure you take care of your employees, pay taxes and remain true to the law, keep your balance sheet and income statement correctly, respond to tactical problems like supply chain issues, distributor issues, and churn out good products and services at the right cost relative to what the market is willing to pay, you’ll probably do okay.
However entrepreneurs, investors, and company managers also need to see strategic threats that may be unfolding before their eyes. Sometimes our own success blinds us to these threats.
We may end up dismissing these threats because of our own hubris.
Here are some examples. For a long time, the gasoline and diesel internal combustion engine (ICE) reigned supreme for most cars, buses and trucks. Right now, majority of the world’s land transportation is still ICE driven, but increasingly advances in technology, cost, manufacturability, and availability of charging stations have made electric vehicles (EV) a good option for many people. It initially grew because of hybrids like the Toyota Prius, and eventually full battery electric vehicles (BEV) like the Tesla became the car of choice for many buyers.
Similarly in the cellphone world, the debut of the iPhone and eventually its competitor Google Android made many older cellphone technologies like the Blackberry and the Symbian phones obsolete as well. Advances in smartphone hardware and software also made gadgets like pagers, standalone DSLR cameras, audio recorders/players, and the like obsolete as well. At some point, whether early or late, the manufacturers of these obsolete appliances realized that their time was up, and they had to quit the business.
In commercial real estate, no developer ever expected that technology applications like Zoom and Google Meet would lead to Work from Home (WFH) policies that would decimate the demand for office spaces. While there is a trend right now to get employees back to the office at least a few times a week, the recovery is currently limited to Class A office buildings that have a cool modern well lit classy vibe. The majority of commercial real estate office buildings are the older Class B, C ones that need some or even extensive renovation that may no longer make sense. Those that are suitable are turned into residential apartments, but banks and CRE developers and investors are still struggling how to cope with the high vacancy rates for these properties. Wework for example was the darling of the investor world just a few years ago. But COVID and the resulting WFH policies decimated its market. Recently the company just declared bankruptcy.
If life were easy, we would be growing our economy maybe slowly but surely in an upward path, with a few small bumps along the way. However life isn’t like that. Economic cycles, such as those pointed out by successful investors like Ray Dalio, do happen. Sometimes times are good and you make a lot of money, but if you do not recognize the signs of an impending major shift in your business and make the necessary hard course corrections, you may end up in a bad situation faster than you realize.
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